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September 01, 2011
Investors Support Call for SEC Rulemaking on Political Spending
    by Robert Kropp

The International Corporate Governance Network writes to the Securities and Exchange Commission in support of petition from academics calling for regulation of corporate political spending.

In a petition submitted in August, the Committee on Disclosure of Corporate Political Spending urged the Securities and Exchange Commission (SEC) "to develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities."

The Committee is a group of ten corporate and securities law experts, co-chaired by Lucian Bebchuk of Harvard Law School and Robert Jackson of Columbia Law School.

"Shareholders in public companies have increasingly expressed strong interest in receiving information about corporate spending on politics, and such spending is likely to become even more important to public investors in the future," the petition stated. "Furthermore, shareholders need to receive such information for markets and the procedures of corporate democracy to ensure that such spending is in shareholders' interest."

In the first proxy season in which investors could address the implications of the Supreme Court's controversial Citizens United decision, shareowner resolutions addressing political spending and disclosure were included on the ballots of 32 companies. Vote totals for eight of the resolutions exceeded 40%, and an additional 14 resolutions gained more than 30% of shareowner support. At Sprint Nextel, a majority of shareowners approved the resolution.

A model resolution created by the Center for Political Accountability (CPA) served as the basis for the 32 proposals. CPA has successfully convinced 51 companies in the S&P 100, and 87 companies overall, to disclose their political expenditures.

"Corporate political spending remains opaque to investors in most publicly traded companies," the petition continued. "The Commission should address this lack of transparency and, drawing on its expertise and experience in designing rules for disclosure of other information that is of interest to investors, should adopt rules concerning disclosure of corporate political spending."

The International Corporate Governance Network (ICGN), an organization of institutional investors who represent $18 trillion in assets under management, has written to the SEC as well, voicing its support for "a rulemaking project to require disclosure of corporate political spending to public company shareholders."

"When corporate resources are deployed to seek political influence there is also potential for abuse," the letter stated. "In the extreme this can lead to serious breaches of business ethics."

Stating that it plans to publish guidance for investors on corporate political lobbying and donations, ICGN wrote, "While best practices are important, this is not a substitute for disclosure, because absent disclosure investors would not know whether companies are following these practices."

In October, CPA and the Wharton School's Zicklin Center for Business Ethics Research will release the Corporate Political Disclosure and Accountability Index. The Index "opens a window on the political priorities and expenditures of the country's largest businesses and allows shareholders and the public to better assess how companies are using the freedom to spend in elections."


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